GBP/USD Turns Higher After the BoE Keeps Rates on Hold

The Bank of England voted unanimously to keep the bank rate at 0.1% and will continue its 200 billion pound program of asset purchases. Two members voted against keeping the asset purchase program unchanged as they wanted to increase the size of the program by an additional 100 billion pounds.

The Bank of England sounded somewhat upbeat as they said some indicators have stabilized at low levels in recent weeks after a big drop in March and April.

While they do expect there to be a sharp fall in GDP and unemployment, policymakers saw the economy improving later in the year and expect the decline in GDP to be temporary. This is on the basis that the UK can relax social distancing measures over time as planned.

The bank sees the sizable fiscal and monetary stimulus efforts as the main driver to a rapid recovery and expects this will lead a bounce back in inflation towards their 2% target.

BoE Governor Andrew Bailey added that they are ready to act further if required to do so, reiterating that they are not out of monetary policy tools despite being close to the zero bound when it comes to the interest rate.

The markets will shift their focus to US data as the weekly jobless claims report will be released next. Analysts are expecting the report to show an additional 3 million jobs lost in the US.

Technical Analysis

GBP/USD bounced higher from slightly above the 1.2300 handle and was last seen making an attempt at the 1.2400 level.

There is some resistance in play at 1.2369 and the pair has not made a clear break of the level as of yet.

The next upside level to watch in the session ahead falls at 1.2424 as this level acted as support earlier in the month as well as in April. It may take a break above the level to encourage bulls that the near-term downtrend has completed.

Bottom Line

• GBP/USD has turned higher after posting four consecutive down days as the BoE showed confidence that the economy will rebound as a result of stimulus efforts.
• The weekly unemployment claims report from the US will be released next.